Nuverra Announces Second Quarter and Year-to-Date 2019 Results

Nuverra Environmental Solutions, Inc. (NYSE American: NES) (“Nuverra,” the “Company,” “we,” “us” or “our”) today announced financial and operating results for the second quarter and six months ended June 30, 2019.

SUMMARY OF QUARTERLY RESULTS

• Second quarter revenue was $45.2 million, an increase of approximately 6.1%, or $2.6 million, when compared with revenue of $42.6 million in the first quarter of 2019.
• When compared to the same period in the prior year, second quarter revenue decreased 7.6%, or $3.7 million.
• Net loss for the second quarter was $5.0 million as compared to $6.4 million in the first quarter of 2019 and $11.2 million in the second quarter of 2018.
• Adjusted EBITDA for the second quarter was $5.3 million, an increase of $0.8 million compared with $4.5 million in the first quarter of 2019.
• Adjusted EBITDA for the second quarter increased by $1.2 million over the same period in the prior year.
• Total liquidity available for capital spending and other purposes as of June 30, 2019 was $22.6 million.

“Overall the second quarter reflected our continued efforts to improve our business in a stable to challenging industry backdrop,” said Charlie Thompson, Chief Executive Officer. “The Rocky Mountain division saw increases in company truck revenue of 4%, salt water disposal well revenue of 36%, rental revenue of 8%, and landfill revenue of 7% when compared to the same period in the prior year. Conversely, revenue related to the use of outside truckers for fracking projects declined 17%, and revenue from lay flat temporary hose declined 84%. The division generated comparable EBITDA, despite a 13% reduction in total revenue as compared to the same period in the prior year, partially as a result of systems modernization and centralization, and management level downsizing that lowered divisional overhead by 36%. The Northeast division saw a dramatic increase in water reuse in 2019. The geographic advantage of our Clearwater acquisition enabled us to increase disposal volumes 155% when compared to the same period in the prior year even with difficult market conditions. However, trucking revenues fell 11% in the suboptimal reuse operating environment. Our focus in the Northeast division continues to be on combining trucking and disposal services for our customers and diversifying our customer base. In the Southern division, revenues declined 11% when compared to the same period in the prior year as a result of materially lower pipeline volumes from a sizable customer, offset by additional volumes from other customers and new business. The influx of new business in the Southern division has helped diversify our customer base in a competitive gas focused market.”

SECOND QUARTER 2019 RESULTS

Second quarter revenue was $45.2 million, an increase of $2.6 million, or 6.1%, from $42.6 million in the first quarter of 2019. Of this 6.1% increase, approximately 7.3% is attributable to increase in activities and (1.1)% to pricing decreases.

When compared to the second quarter of 2018, second quarter 2019 revenue decreased by 7.6%, or $3.7 million, primarily due to decreases in activity levels for water transfer services for all three divisions, partially offset by increases in disposal services in all three divisions. In the Rocky Mountain division, the decrease in water transfer service revenues related to lower trucking volumes for completion projects. Additionally, there was a $2.5 million decrease in water transfer service revenues from lay flat temporary hose due to increased competition for this service in 2019. In the Northeast division, the reuse of production water in customer completion activities during the second quarter of 2019 negatively impacted our activity levels for water transfer services. Offsetting this decrease in the Northeast was an increase in disposal services primarily due to the acquisition of Clearwater Solutions in the fourth quarter of 2018, which contributed revenues of $2.0 million in the second quarter of 2019. In the Southern division, the lower activity levels for water transfer services is due to a decrease in volumes from two key customers in the division. We have replaced some of the lost volume from these customers with new customers and increased volumes through our truck disposal terminal connected to the pipeline.

Total costs and expenses for the second quarter were $49.1 million. Total costs and expenses, adjusted for special items, were $49.3 million, or a $2.0 million increase when compared with $47.3 million in the first quarter of 2019. Total costs and expenses, adjusted for special items, decreased 13.3% compared with $56.9 million in the second quarter of 2018 as a result of a favorable service mix due to growth in higher margin disposal services and active cost reduction efforts over the past year.

Net loss for the second quarter was $5.0 million, an improvement of $1.4 million when compared with a net loss of $6.4 million in the first quarter of 2019. Net loss for the second quarter of 2018 was $11.2 million. For the second quarter of 2019, the Company reported a net loss, adjusted for special items, of $5.3 million. Special items in the second quarter primarily included gains on the sale of underutilized assets, offset by stock-based compensation expense. This compares with a net loss, adjusted for special items, of $6.1 million in the first quarter of 2019 and $9.0 million in the second quarter of 2018.

Adjusted EBITDA for the second quarter of 2019 was $5.3 million, an increase of $0.8 million compared with $4.5 million in the first quarter of 2019. Of the 17.7% increase in adjusted EBITDA, 39.0% related to an increase in activity levels, partially offset by (10.3)% for corporate items and (11.0)% for pricing decreases. When compared to the second quarter of 2018, adjusted EBITDA increased $1.2 million, or 27.9%. The 27.9% increase is comprised of a benefit of 42.1% for acquisitions/closures and 14.0% for corporate items, offset by (23.0)% for decreases in pricing and (5.2)% for decreases in activity levels. Second quarter 2019 adjusted EBITDA margin was 11.7%, compared with 10.6% in the first quarter of 2019 and 8.5% in the second quarter of 2018.

YEAR-TO-DATE RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2019 (“YTD”)

YTD revenue was $87.9 million, a decrease of $10.7 million, or 10.9%, from $98.6 million for the same period in 2018. The decrease in revenues is primarily due to decreases in water transfer services in all three divisions, partially offset by increases in disposal services in all three divisions. Additionally, $1.8 million in revenues associated with the Eagle Ford Shale area were included in revenues in the prior year but did not reoccur in the current year due to management’s decision to exit the Eagle Ford Shale area as of March 1, 2018.

In the Rocky Mountain division, the decrease in water transfer service revenues related to lower trucking volumes for completion projects. Additionally, there was a $2.4 million decrease in water transfer service revenues from lay flat temporary hose due to increased competition for this service in 2019. In the Northeast division, the reuse of production water in customer completion activities during the first six months of 2019 negatively impacted our activity levels for water transfer services. Offsetting this decrease in the Northeast was an increase in disposal services primarily due to the acquisition of Clearwater Solutions in the fourth quarter of 2018, which has contributed revenues of $4.4 million thus far in 2019. In the Southern division, the lower activity levels for water transfer services is due to a decrease in volumes from two key customers in the division.

YTD net loss was $11.4 million, an improvement of $31.9 million when compared with a net loss of $43.3 million for the same period in 2018. YTD net loss, adjusted for special items, was $11.5 million, an improvement of $11.2 million when compared with a net loss, adjusted for special items, of $22.7 million for the same period in 2018. YTD special items primarily included gains on the sale of underutilized assets, offset by stock-based compensation expense and long-lived asset impairment charges.

YTD adjusted EBITDA was $9.8 million, an increase of $3.3 million, or 50.9%, when compared with the same period in 2018. Adjusted EBITDA margin for the 2019 YTD period was 11.2%, compared with 6.6% in 2018.

CASH FLOW AND LIQUIDITY

Net cash provided by operating activities for the six months ended June 30, 2019 was $4.5 million, while capital expenditures net of asset sales consumed cash of $0.5 million. Asset sales were related to unused or under-utilized assets. The proceeds have been reinvested in 2019 in returns-driven growth projects, including the purchase of new water transfer trucks for our fleet.

Total liquidity available for capital spending and other purposes as of June 30, 2019 was $22.6 million. This consisted of cash and available revolver borrowings of $16.9 million, plus an additional $5.7 million delayed draw borrowing capacity under our second lien term loan. As of June 30, 2019, total debt outstanding was $37.1 million, consisting of $19.7 million under our senior secured term loan facility, $9.8 million under our second lien term loan facility, and $7.7 million of finance leases.

About Nuverra

Nuverra Environmental Solutions, Inc. is a leading provider of water logistics and oilfield services to customers focused on the development and ongoing production of oil and natural gas from shale formations in the United States. Our services include the delivery, collection, and disposal of solid and liquid materials that are used in and generated by the drilling, completion, and ongoing production of shale oil and natural gas. We provide a suite of solutions to customers who demand safety, environmental compliance and accountability from their service providers. Find additional information about Nuverra in documents filed with the U.S. Securities and Exchange Commission (“SEC”) at http://www.sec.gov.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act of 1934, as amended. You can identify these and other forward-looking statements by the use of words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “might,” “will,” “should,” “would,” “could,” “potential,” “future,” “continue,” “ongoing,” “forecast,” “project,” “target” or similar expressions, and variations or negatives of these words.

These statements relate to our expectations for future events and time periods. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, and any forward-looking statements contained herein are based on information available to us as of the date of this press release and our current expectations, forecasts and assumptions, and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. Future performance cannot be ensured, and actual results may differ materially from those in the forward-looking statements. Some factors that could cause actual results to differ include, among others: financial results that may be volatile and may not reflect historical trends due to, among other things, changes in commodity prices or general market conditions, acquisition and disposition activities, fluctuations in consumer trends, pricing pressures, transportation costs, changes in raw material or labor prices or rates related to our business and changing regulations or political developments in the markets in which we operate; risks associated with our indebtedness, including changes to interest rates, decreases in our borrowing availability, our ability to manage our liquidity needs and to comply with covenants under our credit facilities; the loss of one or more of our larger customers; difficulties in successfully executing our growth initiatives, including identifying and completing mergers, acquisitions and divestitures, successfully integrating merged or acquired business operations, and identifying and managing risks inherent in mergers, acquisitions and divestitures, as well as differences in the type and availability of consideration or financing for such mergers, acquisitions and divestitures; our ability to attract and retain key executives and qualified employees in key areas of our business; our ability to attract and retain a sufficient number of qualified truck drivers in light of industry-wide driver shortages and high-turnover; the availability of less favorable credit and payment terms due to changes in industry condition or our financial condition, which could constrain our liquidity and reduce availability under our revolving credit facility; higher than forecasted capital expenditures to maintain and repair our fleet of trucks, tanks, equipment and disposal wells; control of costs and expenses; changes in customer drilling, completion and production activities, operating methods and capital expenditure plans, including impacts due to low oil and/or natural gas prices or the economic or regulatory environment; risks associated with the limited trading volume of our common stock on the NYSE American Stock Exchange, including potential fluctuation in the trading prices of our common stock; risks and uncertainties associated with our completed restructuring process, including the outcome of a pending appeal of the order confirming the plan of reorganization; risks associated with the reliance on third-party analysts, appraisers, engineers and other experts; present and possible future claims, litigation or enforcement actions or investigations; risks associated with changes in industry practices and operational technologies and the impact on our business; risks associated with the operation, construction, development and closure of saltwater disposal wells, and transportation assets, landfills and pipelines, including access to additional locations and rights-of-way, permitting and licensing, environmental remediation obligations, unscheduled delays or inefficiencies and reductions in volume due to micro- and macro-economic factors or the availability of less expensive alternatives; the effects of competition in the markets in which we operate, including the adverse impact of competitive product announcements or new entrants into our markets and transfers of resources by competitors into our markets; changes in economic conditions in the markets in which we operate or in the world generally, including as a result of political uncertainty; reduced demand for our services due to regulatory or other influences related to extraction methods such as hydraulic fracturing, shifts in production among shale areas in which we operate or into shale areas in which we do not currently have operations; the unknown future impact of changes in laws and regulation on waste management and disposal activities, including those impacting the delivery, storage, collection, transportation, treatment and disposal of waste products, as well as the use or reuse of recycled or treated products or byproducts; risks involving developments in environmental or other governmental laws and regulations in the markets in which we operate and our ability to effectively respond to those developments including laws and regulations relating to oil and natural gas extraction businesses, particularly relating to water usage, and the disposal, transportation and treatment of liquid and solid wastes; and natural disasters, such as hurricanes, earthquakes and floods, or acts of terrorism, or extreme weather conditions, that may impact our business locations, assets, including wells or pipelines, distribution channels, or which otherwise disrupt our or our customers’ operations or the markets we serve.

The forward-looking statements contained, or incorporated by reference, herein are also subject generally to other risks and uncertainties that are described from time to time in the Company’s filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s views as of the date of this press release. The Company undertakes no obligation to update any such forward-looking statements, whether as a result of new information, future events, changes in expectations or otherwise. Additional risks and uncertainties are disclosed from time to time in the Company’s filings with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.

- Tables to Follow -

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATIONS
(In thousands)
(Unaudited)

This press release contains non-GAAP financial measures as defined by the rules and regulations of the United States Securities and Exchange Commission. A non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statements of operations or balance sheets of the Company; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. Reconciliations of these non-GAAP financial measures to their comparable GAAP financial measures are included in the attached financial tables.

These non-GAAP financial measures are provided because management of the Company uses these financial measures in maintaining and evaluating the Company’s ongoing financial results and trends. Management uses this non-GAAP information as an indicator of business results, and evaluates overall performance with respect to such indicators. Management believes that excluding items such as acquisition expenses, amortization of intangible assets, stock-based compensation, asset impairments, restructuring charges, expenses related to litigation and resolution of lawsuits, and other charges, which may or may not be non-recurring, among other items that are inconsistent in amount and frequency (as with acquisition expenses), or determined pursuant to complex formulas that incorporate factors, such as market volatility, that are beyond our control (as with stock-based compensation), for purposes of calculating these non-GAAP financial measures facilitates a more meaningful evaluation of the Company’s current operating performance and comparisons to the past and future operating performance. The Company believes that providing non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per share, in addition to related GAAP financial measures, provides investors with greater transparency to the information used by the Company’s management. These non-GAAP financial measures are not substitutes for measures of performance or liquidity calculated in accordance with GAAP and may not necessarily be indicative of the Company’s liquidity or ability to fund cash needs. Not all companies calculate non-GAAP financial measures in the same manner, and our presentation may not be comparable to the presentations of other companies.

[1] Reorganization items, net represents the costs related to the chapter 11 filing incurred after the May 1, 2017 filing date.

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATIONS (continued)
(In thousands)
(Unaudited)

(a) Represents the combined impact of the Clearwater Solutions acquisition on October 5, 2018 and management’s decision to exit the Eagle Ford Shale area as of March 1, 2018.

(a) Represents the combined impact of the Clearwater Solutions acquisition on October 5, 2018 and management’s decision to exit the Eagle Ford Shale area as of March 1, 2018.